By  on September 9, 2013

TPG and Warburg Pincus’ talks to sell Neiman Marcus Group to a financial consortium are said to be heating up, making an initial public offering of the luxury retailer less likely.

Sources said over the weekend that sale talks are in the later stages, and that the situation is fluid. That means that negotiations could still break up, or get wrapped up fairly quickly provided certain matters still at issue become resolved sooner than expected.

The transaction, if an agreement is reached, is believed to be for more than $6 billion.

The two private equity firms were said to be seeking over $7.1 billion in April when word first surfaced that they were pursuing a dual track to explore options for the specialty retailer. The dual track, a sale of the company or an IPO, is the typical strategy these days for financial sponsors looking to exit their investment.

TPG and Warburg Pincus bought Neiman’s in 2005 for $5.1 billion in a cash-and-debt deal. Leonard Green & Partners subsequently acquired a stake in the company.

Spokesmen for TPG and Warburg Pincus declined comment.

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The Wall Street Journal on Sunday reported that the two financial buyers in discussions to acquire Neiman’s are Ares Management and the Canada Pension Plan Investment Board.

Ares Management has experience investing in the fashion industry. It is a one-time owner of Maidenform Brands Inc. in 2004, and also had taken a look at Saks Inc. Ares also is among a handful of financial sponsors of Advanstar Global LLC, a trade show operator.

CPPIB is an investment organization that invests the assets of the Canada Pension Plan. It invests globally, and had $188.9 billion in net assets as of June 30.

It was thought in recent weeks that Neiman’s owners were closer to an IPO since there didn’t seem to be any interest from a strategic buyer. Private equity firms have essentially three options when exiting their investment: a sale to a strategic buyer, an IPO or a sale to another financial sponsor.

Often the preference is a sale to a strategic buyer who might be willing to pay more and garner some back office synergies with its existing platform. Flipping to another financial sponsor hasn’t been as prevalent because they are thought to be not as willing to pay as much as strategic buyers. That thinking might change, since many financial buyers are still flush with cash that needs to be put to work.

In the case of Neiman’s, the two private equity firms also have an incentive to sell the company, even if it means a deal for less than the original asking price. That’s due to concern in recent weeks that the IPO window might close, given worries that the U.S. economy would slow and the uncertainty of the impact of the political backdrop overseas in Syria.

In addition, an IPO wouldn’t provide the private equity firms a complete exit from their investment. An IPO would be only for a small part of Neiman’s, with the owners retaining a majority stake, sources said. That raises risks that down the road the balance of their stake might garner a lower valuation if the economy suffers as it did in 2008 and luxury consumers pull back on their purchases, one financial source said.

If these talks break up, the odds are still in favor of a sale instead of an IPO. Sources said KKR & Co. and CVC Capital is another consortium that has been circling Neiman’s for several months, and are potential backup buyers. KKR, in particular, has been eyeing Neiman’s and at one point was looking at a possible combination of Neiman’s and Saks. Saks subsequently inked an agreement to be acquired by Hudson’s Bay Co. The go-shop period for Saks has ended. KKR could take another look at Saks but would have to pay a higher break-up fee if it elects to pursue the retailer again.

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